Trade and tariffs: Biden pursues Trump’s protectionism

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Container ship at the Port of Los Angeles in San Pedro, California on September 29, 2021. (Mike Blake / Reuters)

Biden-Trump’s protectionist policies are bad for the economy and fall short of their supposed goals.

Jin Biden promised his supporters that he would “make America respected around the world again.” The most recent rebuttal to this promise is in the realm of commerce. In a recent statement, Hans Dahlgren, Swedish Minister for European Affairs, warned that “the new president [Joe Biden] is more favorable to cooperation with Europe. . . . But we must not delude ourselves ; [Biden] represents the interests of the United States, and when he defends America first, it looks a lot like the trade policy of [Donald] Asset.”

Now the United States has no duty to follow the advice of European bureaucrats. But wisdom comes from strange places these days. Trump’s trade policies were damaging, as U.S. Trade Representative Katherine Tai said in a recent speech. But the policies she exposes do not show a significant departure from Trump’s. Tariffs remain a “very important tool” in administration policy, according to his speech.

In fact, we just learned that in August the federal government collected $ 7.6 billion in tariffs, a monthly total higher than any month in the Trump administration. If Trump’s policies were damaging, this administration is on the right track to consolidate and extend that legacy.

We shouldn’t be surprised. Trade wars create a deadly cycle of market distortion. Tariffs are followed by retaliatory tariffs, followed by subsidies to help domestic industry harmed by the tariffs. In addition, tariffs persist long after their implementation despite efforts to remove them. Trump and Biden’s tariff policies provide a case study against their widespread use.

Tariffs are sticky, which means they’re much more difficult to eliminate than to implement. Indeed, they can be imposed unilaterally, but can only be removed through laborious bilateral negotiations. It is a form of the prisoner’s dilemma. The two sides could cooperate by refusing to impose tariffs, thus not giving either side a trade advantage. Once either side tries to gain the advantage, the other will inevitably retaliate. If that happens, it leaves both countries in a worse economic situation and with no trade advantage – the worst of all outcomes. Of course, the way around a prisoner’s dilemma is cooperation, but the process is complicated and takes time.

The dynamics of rigid tariffs are evident in the United States’ trade relationship with China. As of 2018, Trump has imposed tariffs on $ 50 billion worth of Chinese goods. China subsequently retaliated with tariffs of an equal amount. The two sides further intensified tariffs on $ 200 billion in Chinese exports and $ 60 billion in US exports. Although a trade deal was negotiated in January 2020, it only suspended further escalation, leaving the old tariffs in place. When China introduced tariffs on agricultural products such as soybeans, the United States subsidized agriculture. Market distortion often leads to a domino effect where the government attempts to solve a series of cascading problems initially caused by its own actions.

Dahlgren’s prediction turned out to be premonitory. Last Monday, the Biden administration announced it would leave Trump-era tariffs in place and even consider imposing more while continuing to negotiate with China. The Biden administration claims this is because China violated the terms of the Trump administration’s trade deal, in which China pledged to close the trade deficit by buying an additional $ 200 billion in American exports. This despite the fact that trade deficits are a mulligan. A trade deficit is the difference between the value of US imports and exports. The United States currently imports more goods from China than China exports to the United States Contrary to the misleading term “deficit,” the United States owes China nothing based on this difference. It just means that Chinese individuals hold US dollars while US consumers hold more goods. There are far more important issues in the trade debate than trade deficits. Even if you care about the trade deficit, Biden-Trump trade policies don’t seem to have much of an effect on it: In August, the trade deficit hit a historic monthly high of $ 73.3 billion. Sadly, Trump’s trade policies are here to stay, at least for some time to come.

The economic damage from these policies will extend far into the future. Trade restrictions are a loss for American consumers, producers and workers. Consumers see higher prices because the tariff costs are passed on to them. They regularly pay hundreds of thousands of dollars per domestic job saved by tariffs. Tariffs disrupt the market process and have unintended consequences for US producers. For example, due to retaliatory tariffs from the European Union, Harley Davidson announced that it would move some of its production outside of the United States. Falling productivity also hurts American workers on the net, since their wages are largely determined by productivity growth.

Rejecting tariffs as an ineffective tool does not preclude a realistic policy of dealing with the threat from China and other aggressors. The United States should focus on strengthening industries in which we have a comparative advantage. US trade policy should involve more targeted methods, such as sanctions against particular malicious actors, instead of tariffs. Using tariffs in response to Chinese fraud and manipulation is like wielding a hammer over a finishing nail. So far, none of the issues the tariffs were supposed to target, such as Chinese intellectual property theft and domestic industry subsidies, have been resolved.

Free trade has become a politically homeless idea, supported by neither side with great eagerness. Trump opposed the idea of ​​free trade and now Biden is showing signs of following in his footsteps. But Biden-Trump protectionism is a dead end. The United States should reaffirm its commitment to the idea of ​​global free trade within the framework of strengthened rules of the game. Focusing on our strengths will increase the prosperity and competitiveness of the United States abroad. Tariffs and other trade restrictions are much easier to impose than to eliminate, and they must eventually be eliminated if the US economy is to thrive. All attempts to relax trade restrictions are admirable, but the difficulty of these attempts should warn against their implementation in the first place.

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Noah C. Gould is a program associate at the Acton Institute, where he writes on economics, politics and culture.


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